A10 REIT is marketing bonds backed by short-term loans on “transitional” commercial properties, according to DBRS.

The $377 million deal, dubbed A10 TAF 2017-1, is backed by 30 loans secured by 52 commercial properties. The collateral of the underlying loans primarily consists of traditional property types of office, retail, industrial and multifamily,
with minimal exposure to assets with very high expense ratios, such as hotels or property types where conventional takeout financing may not be as readily available.

The largest loan, at $38.5 million, or 9.5% of the portfolio, is secured by the Menlo Right Aid Portfolio of 16 free-standing pharmacy buildings totaling 177,811 square feet. The properties are located across New York, Pennsylvania and Ohio.

There are no loans in the pool with pari passu debt.

However, one individual loan representing 5.8% of total commitments, 1621 Barber, has additional debt in the form of a B-note. A second loan, Sandridge, which totals 5% of the transaction balance, is encumbered by a second deed of trust on another real property not included as collateral for this transaction. A subordination and standstill agreement is in place.

Twenty underlying properties, representing 64.8% of the total commitments, have a future funding component totaling $47.5 million and ranging from $145,000 to $6.9 million. The vast majority of commitments are for improvements to the properties securing the loans that are at the lender’s discretion and are expected to be used for leasing costs (60.0% of total commitments) and capital improvements (24.6% of total commitments).

DBRS expects to assign an AAA to two super senior tranches of Class A notes to be issued, which benefit from 44% credit enhancement. as well as a senior tranche of Class A notes with 31.5% credit enhancement. There are five more tranches (Classes B-F) with ratings ranging from A to B.

In order to comply with risk retention rules, a affiliate of A10 Capital will be holding the first-loss position (including Classes E and F and equity tranches).

Editor's note: The original version of this article incorrectly stated that A10 TAF 2017-1 was the sponsor's first transaction of this type; however A10 REIT completed an offering of bonds backed by bridge loans on commercial property in 2012.

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